U.S. Investors Dismiss Rising Interest Rates

The majority of market analysts believe that the United States Federal Reserve will maintain the current interest rates during the first half of 2010.

According to a survey of fund managers issued by Merrill Lynch of Bank of America, investors anticipate that the Fed (Federal Reserve) won’t modify interest rates until at least the second half of that year.

One out of six participants believe that the central Bank of America will not modify the reference interest rate, which is approximately 0.25 percent, until 2011.

With respect to prices, 47 percent of those surveyed believe that the underlying inflation at the world level will tend to climb in the next year, up from the 39 percent who had that impression last October.

Furthermore, as Merrill Lynch points out, there is an increase in demand for assets that protect investors from inflation, such as gold and petroleum, and it notes that 25 percent of the managers surveyed increased their investments in raw materials, as opposed to the 11 percent who had done so in October.

At the same time, investments considered by investors as protection against falling prices (deflation), such as fixed income or investment in public services, are less popular these days, according to the banking body.

“Investors see inflation as a greater risk than deflation”, stated Michael Hartnett, the spokesman for Bank of America Merrill Lynch Global Research, in a press release. He added that this perception would cause people to strengthen investments in raw materials and emerging markets and to reduce the stockpiling of cash.

Another part of the survey reveals a change in opinion on whether companies should get on board with debt reduction before committing to new investments. 50 percent of those surveyed believed this to be true two months ago, whereas only 36 percent believe so now.